An Post is expected to decide shortly on the future of its Internet arm, PostGem/Ireland On-Line (IOL). A prospectus was circulated to 20 Irish and international telecommunications and multimedia companies three weeks ago containing details of the company's assets, business and turnover.
An Post engaged US investment advisers, Hambrecht & Quest, to help it decide on a strategic future for the Internet companies. The prospectus is viewed within the industry as a preliminary step in preparing PostGem/IOL for sale, as any official decision to sell would require the Minister for Public Enterprise, Mrs O'Rourke's approval.
Several companies are said to be interested in buying PostGem/IOL, although it is unclear whether the companies are for sale individually or jointly, or if An Post is seeking a joint-venture partner. Speculative values placed on the company this week have ranged between £10 million (€12.7 million) and £40 million.
According to one industry source: "An Post is dipping its toe in the water to see if anyone is interested in buying it. If there's sufficient interest then they might consider selling it."
Hambrecht & Quest is expected to report back to An Post in late August or early September.
There is considerable industry interest in Postgem and IOL. Companies said to have received the prospectus include NTL, which recently bought Cablelink; WorldCom, Esat Telecom, Princes Holdings, which is 50 per cent owned by Independent News & Media (formerly Independent Newspapers), and Ocean, the ESB/ British Telecom joint venture.
It is believed WorldCom approached An Post last year, and again two months ago to purchase the Internet operations. However, discussions ended when An Post was only willing to sell a minority share of the subsidiary, with no option to increase that holding.
WorldCom already supplies PostGem/ IOL with a lot of bandwidth, and it has been suggested it might be a favoured buyer because of the existing relationship, which might provide a smooth migration path for PostGem/IOL management.
Princes Holdings, would also be attracted to the company because of the size of PostGem/IOL's customer base. Its joint venture partner, Independent News & Media is planning to launch a digital television service next year, and it is said to be seeking an interactive Internet product to complement its digital service.
While it could develop this service itself, it would make more sense to buy into an Internet company with an existing customer base. However, Independent chairman Dr Tony O'Reilly's aversion to loss-making companies will doubtless play a significant role in the final decision.
NTL is likely to consider the company as a vehicle for building its network in the Republic, but as with its Cablelink acquisition, PostGem/IOL is expected to require considerable investment.
According to sources close to the company, PostGem/IOL is suffering from a profound lack of investment. It no longer operates a Web development department, which is generally accepted to be critical in devising future revenue streams for Internet operators. It has considerable staff turnover among the 140-strong workforce with quality expertise constantly moving to more dynamic companies.
While PostGem/IOL currently holds around 35 per cent of the Irish Internet market, Telecom Eireann's Indigo and Tinet are not far behind.
PostGem/IOL's future has been further thwarted by the recent surprise decision by Ocean - the joint BT and ESB venture - to give away Internet access. Almost all of PostGem/IOL's annual £7 million (€8.9 million) revenues are based on subscription charges.
According to one industry source: "All it has is a user base and brand name. As long as it's tied to subscriber revenue I can't see it being value for money. A lot of its future hinges on the growth of Ocean."
